As the nation's employers prepare for the Affordable Care Act's
implementation, many are focused on the law's 2018 excise taxes -- and how to
avoid them.

By Andrew R. McIlvaine

Friday, September 6, 2013

During
recent meetings around the United States with members of her organization
(mostly large companies), Helen Darling says she was surprised at the lack of
antipathy expressed toward the Affordable Care Act -- a marked change from
earlier meetings. However, a question that came up repeatedly, she says, was
whether the recently announced yearlong delay in the law's "play or pay"
component -- requiring employers of a certain size to either offer affordable
health coverage to their full-time employees or else pay a penalty -- meant the
ACA was heading for repeal.

"I
told them that, unless there's a big change in Congress and the White House in
2016, the law is not going to be repealed," says Darling, president of the
Washington-based National Business Group on Health. "I told them they
should continue on the path to compliance."

"This
is nothing more than a tactical delay," says Chris Ryan, vice president of
Roseland, N.J.-based ADP's Strategic Advisory Services. "For all practical
purposes, the ACA is moving ahead and the strategic implications have not changed."

HR
should be taking advantage of the delay to test and "harden" their
systems, he says, using next year as a dress rehearsal to ensure they aren't
hit with big fines for noncompliance in 2015.

"The
first thing I say to clients is: 'Don't let up,' " says Ryan.

"I
don't think employers should be taking their feet off the gas pedal, but [the
delay] does allow them to ease up a bit and let the market develop a little,"
says Chris Calvert, health practice leader for New York-based Sibson
Consulting.

Even
before the delay, however, Calvert, Ryan and other consultants say their
clients -- many of them large and mid-sized companies that already offer
healthcare benefits to most of their employees -- were focused mostly on
finding ways to avoid the ACA's 2018 excise taxes (also known as the Cadillac
tax) on high-cost health plans.

"About
two thirds of the employers we surveyed last year said they would probably
trigger those taxes in 2018 unless they made changes," says Sandy Ageloff,
health and benefits group leader at Towers Watson in Los Angeles.

To
avoid that 40 percent tax, employers will need to keep total health-plan costs
below a threshold of $10,200 for an individual and $27,500 for a family in
2018.

But
doing this "may require fundamental changes in the type of health benefit
[employers] provide and how they provide it," says Tracy Watts, a partner
at Mercer's Washington office.

As
businesses throughout the United States prepare for life under "Obamacare"
-- a name that was initially seized on by President Obama's political opponents
but has since been embraced by many others, including the president himself -- they
are rethinking their approach to health benefits.

Some
are choosing to make high-deductible health plans their only option, while others
are taking a "defined-contribution" approach by giving their
employees fixed amounts of money to purchase their own plans on private
healthcare exchanges. Companies are also taking a look at new quality and
transparency software tools designed to make employees better healthcare
shoppers by encouraging them to focus on price and quality.

On
a broader level, many employers are taking a hard look at reining in the cost
of healthcare by changing the way doctors and hospitals are paid for their
services. This movement is being helped along by recent stories in Time and the
New York Times about wide discrepancies in the prices charged

by
providers -- often within the same ZIP code -- for identical medical
procedures.

More
than a third of employers say they have begun taking steps now to avoid the
2018 tax, most commonly by focusing on high-deductible health plans, according
to a Mercer survey of 900 employers released earlier this summer.

"The
nice part of having the tax come into effect later, in 2018, is that you can do
things that don't have an immediate short-term impact but can retrain people
over time over what represents cost and quality," says Calvert.

Some
employers are trying to make their workers active partners in the fight to
lower healthcare costs by encouraging them to scrutinize and compare the prices
charged by local providers for identical procedures.

At
Indiana University, approximately 70 percent of the Bloomington, Ind.-based
institution's 18,000 employees -- along with their family members -- are
enrolled in a high-deductible health plan paired with a health-savings account
that's seeded with money from the university. The plan includes carve-outs for
preventive care and medicine for chronic illnesses, so employees don't have to
use their deductibles to pay for such things as insulin treatment for diabetes.

"It's
marvelous how quickly employees begin thinking of the funds within the HSAs as
their own money, even when it comes from the university," says Dan Rives,
IU's associate vice president for human resources. "When they see it as
their money, they tend to make their decisions a little differently."

By
"differently," he means that they tend to want to spend it more
judiciously -- and the university offers them a price and quality transparency
tool from San Francisco-based Castlight Health designed to help them do just
that.

"A
major piece of this strategy is getting people to understand that there can be
huge differentials in price -- not so much for primary care, but for
specialized services such as MRIs," says Rives.

He
cites a close friend who recently underwent a CT scan as an example. After the
friend's physician recommended a provider, the friend asked whether she was
required to use that provider. When the answer was no, she did some research on
Castlight and found that, not only were there a total of four different
providers in her part of town offering CT scans using identical equipment, but
their prices for the procedure ranged from $750 to $1,700.

"Ever
since then, she's gotten more engaged in making healthcare decisions than I
could ever have imagined," says Rives. "People are walking around
checking out the prices of procedures on their mobile devices. I can imagine, in
the near future, people walking into a provider's office with this information
on their mobile devices and being ready to negotiate."

The
tool includes quality information on each provider, along with the source of
the quality information, says Rives. Additionally, users can find out whether
the provider is accepting new patients and get driving directions to the
facility.

"When
it comes to their money, our employees are sponges for this type of
information," says Rives.

"The
closer you can bring employees in, the more they can help you," says
Dexter Shurney, executive director of global health and wellness at Cummins
Inc., a Columbus, Ind.-based provider of diesel engines and components.

The
company offers only a high-deductible plan to its 18,000 employees in the
United States, he says. In addition to a transparency tool from Castlight
Health, Cummins provides a service called Second Opinion, which lets employees
consult other doctors for additional advice on whether they need a procedure
that's been recommended by one doctor.

Pushing
for Payment Reform

Getting
employees focused on price and quality may turn out to be an effective
strategy, but it can't be the only strategy, says Suzanne Delbanco, executive
director of Catalyst for Payment Reform, a San Francisco-based employer
coalition pushing for "better value" in U.S. healthcare. The CPR's
members include companies such as Wells Fargo, GE, Walmart and IBM.

The
CPR's formation in 2010 was supported by members of the Leapfrog Group -- a
coalition of large employers that worked with hospitals to standardize pricing
and improve service quality.

"The
impetus behind our formation came from large employers who were thinking about
what's next in terms of getting better value out of the healthcare system,"
says Delbanco. "Our goal is to make it as easy as possible for employers
to become health reformers."

The
United States has a "long way to go" to get to a healthcare system in
which the preponderance of payments are supporting better-quality care, she says.
She cites the CPR's first-ever National Scorecard on Payment Reform,
released in March, which found only 11 percent of the healthcare dollars paid
to doctors and hospitals in the United States tied to quality and efficiency.
Nearly 90 percent of the healthcare spend was devoted to traditional
fee-for-service payments or bundled payments, in which providers were simply
paid for their services with no questions asked about their quality or
necessity.

With
the United States paying far more for healthcare than other industrialized
countries, yet getting worse outcomes in return, something has to change, says
Delbanco.

"There
is general agreement that we need to move away from fee-for-service and toward
payment methods that create incentives for higher-quality care, as well as more
careful use of resources," she says.

Rather
than simply offering a potential upside, says Delbanco, providers must also
have some financial risk at stake should they end up going over-budget -- which
could be addressed through bundled payments with quality measurements attached.
"Right now, very little of the payment methods today involve shared risk
for the provider, but ultimately we're heading there," she says.

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New
approaches such as "reference pricing" are beginning to take hold,
says Delbanco. With reference pricing, employers list the price they are
willing to pay for a given procedure or service -- employees who go to a
provider that meets that price will receive full coverage. Those who elect to
go to providers that charge more will pay the difference out of their own
pockets.

Reference
pricing has been under way for several years in places such as California,
where a program negotiated by the California Public Employees' Retirement
System (Calpers) in partnership with Wellpoint resulted in providers agreeing
to fixed prices for certain medical procedures performed at their facilities
for plan participants. The participating providers include well-respected
institutions such as Cedars-Sinai Medical Center in Los Angeles.

During
its initial year, overall costs for operations under the program fell by 19
percent. The average amount Calpers paid hospitals for joint replacements, for
example, fell from $35,408 to $28,695 in 2011 alone, according to Wellpoint.

"It's
a race to value," Dr. Samuel R. Nussbaum, chief medical officer for
Wellpoint, told the New York Times.

Luring
the Young

High-quality
catastrophic-case-management services, specialty programs to help employees
manage their chronic conditions and biometric screenings will all be
instrumental in helping to keep costs down, says Ryan.

What
else will be instrumental? Making sure younger employees enroll in and remain
with your organization's benefit offerings to offset the costs of their older
-- and less healthy -- colleagues, he says.

"The
key point is that, over time, businesses are going to be competing with the
public exchanges to enroll the younger population, so the question will be, how
do you get young employees to participate in your company's health benefits?"
says Ryan. "I think the key is being able to offer a low-cost catastrophic
care option for young people and engaging them to join your plans -- that's a
viable strategy to keep premiums lower."

Although
the average age of the workforce is 40.1, he says, the average age of employees
who enroll in health benefits is 43.

"So
ask yourself, what could happen if you could bring the average age of enrolled
employees down?" says Ryan. "It could be a strategy for bypassing, or
at least delaying, the excise taxes."

While
HR departments can calculate how many employees will be newly eligible for
coverage next year, they can't predict how many will actually elect coverage,
he says. Although the ACA requires most adults to have coverage, the penalties
for not having coverage in 2014 are so small -- as little as $95 per person -- that
many may elect to forgo coverage.

It's
one reason that advocates of private healthcare exchanges -- which allow
employers to offer a variety of health plans for employees to choose from -- are
a good option for companies that want to keep their younger workers enrolled.
Young people tend to be less interested in health benefits than older
generations but will be more likely to participate if they can choose a
bare-bones plan that charges a low premium, they say.

Private
exchanges can also lower healthcare costs overall, they say. Mercer, Towers
Watson, Aon Hewitt and Buck Consultants have all rolled out private exchange
platforms recently. Although private exchanges initially were focused on
selling fully insured products, many now offer options for self-insured
employers as well.

"Employees
are going to spend their employer's money very freely, but they're going to
spend their own much more stingily," says Jim DiGiuseppe, a principal at
Evolution Benefits Consulting in Malvern, Pa. The firm has created a private
healthcare exchange for its clients.

As
Darling sees it, the drawbacks to a DC approach to healthcare benefits is that
if it's not done in a "sufficiently nuanced manner," with lots of
support, then it could turn into something that sucks up a lot of money while
delivering little in return. "It would always be experienced as a problem,
and it would create a lot of resentment if you don't provide lots of tools and
resources," she says.

It
will be interesting, Calvert adds, to watch the public exchanges and see
whether the narrow networks -- which offer enrollees a very limited selection
of providers -- being offered there end up being tolerated by consumers.

"If
they do, I think we'll see more aggressive tactics in those areas by employers,"
he says.

There
are drawbacks to anything that limits choice, Calvert cautions. However, cost
pressures dictate that employees and their employers must do things they may
not be comfortable with, including putting some limits on choice, he adds.

"No
one wants to have to flip a switch in 2018 and cut the heart out of their
health-benefits program," says Michael Thompson, a principal in New
York-based PwC's healthcare-consulting practice.